Wonga are so wronga

Local 18WONGA, the payday lender, has been ordered to pay compensation of £2.6m after sending threatening letters from non-existent law firms to its customers in arrears.

The letters suggested that legal action would be taken, but the law firms were false.

In some cases, Wonga even added fees for these letters to customers’ accounts.

The Financial Conduct Authority (FCA) – the City watchdog – said 45,000 customers would receive compensation.

The loan company, which has apologised, said the tactic ended nearly four years ago.

Wonga is the UK’s largest payday lender, making nearly four million loans to one million customers in 2012, according to the latest figures available.

An investigation found that Wonga sent letters to customers from phoney law firms called Chainey, D’Amato & Shannon”, and “Barker and Lowe Legal Recoveries”.

The plan was to make customers in arrears believe that their outstanding debt had been passed to a law firm, with legal action threatened if the debt was not paid.

The firm used this tactic to maximise collections by piling the pressure on customers, said the regulator.

Clive Adamson, FCA director of supervision, said: “Wonga’s misconduct was very serious because it had the effect of exacerbating an already-difficult situation for customers in arrears.

“The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

The situation occurred between October 2008 and November 2010, involving Wonga and other companies within its group.

But because this happened before the FCA began regulating payday lenders, Wonga cannot be fined.

It also said there would be no criminal investigation because it wanted to set up a compensation scheme as quickly as possible, and that a criminal probe would take time.

Instead, Wonga will start contacting customers in July to offer compensation, with money likely to be paid by the end of the month. This will either be paid in cash, or customers will have their outstanding debt reduced.

Tim Weller, interim chief executive of Wonga, said:

“We would like to apologise unreservedly to anyone affected by the historical debt collection activity, and for any distress caused as a result.

“The practice was unacceptable, and we voluntarily ceased it nearly four years ago.”

Anyone who might have changed address in the intervening period should contact Wonga.

Labour MP Stella Creasy, who campaigns against payday loans, has questioned the lack of criminal investigation.

She queried on social media site Twitter: “Why, in those instances where customers of Wonga charged debt-collection fees for these letters, is that not a police matter?”

Richard Lloyd, executive director of consumer group Which? said: “It is right the FCA is taking a tougher line on irresponsible lending, and it does not get much more irresponsible than this.

“It is a shocking new low for the payday industry, which is already dogged by bad practice – and Wonga deserves to have the book thrown at it.”

The investigation was started by the FCA’s predecessor, the Office of Fair Trading (OFT). But Wonga said it stopped the tactic voluntarily, and then offered information to the OFT.

Also, in April, Wonga discovered it had miscalculated some customers’ balances.

This resulted in 200,000 people overpaying the company, but Wonga said the majority overpaid by under £5, and a larger number underpaid.

Those who overpaid will be contacted by Wonga, and the underpaid debt will be cancelled.

Mr Weller said the company would learn from these mistakes and was strengthening its internal controls.

The Wonga problems come shortly after its boss, Niall Wass, quit his chief executive role after six months.

He joined Wonga in January 2013 as chief operating officer – after the fake lawyer tactics ended – and became chief executive in November.

Earlier this month, chairman and founder Errol Damelin also announced that he was planning to quit.

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Posted by on Jun 27 2014. Filed under World News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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